David Dutton, Mattson Technology President and CEO

David Dutton (Source: Mattson Technology)

SI: Over the past couple years, Mattson has experienced hard times, resulting from the catastrophic downturn from which the industry now appears to be slowly recovering. However, this was exacerbated by decisions made to quickly grow the company through acquisitions and mergers, defocusing it from its core competencies. Can you comment on what you have done to get the company back on track?

Dutton: Much was due to the timing of those decisions as well. We were growing through acquisitions, and when the downturn hit it became difficult to assimilate them in the pressured environment it created. A year ago, we revisioned the company to focus around three key strong areas. The top focus is the continued drive for customer loyalty. We feel very strongly that, as we move into the future, our customers increasingly rely on us to help them integrate process technology. Over time, the expertise of process technology has migrated down into the semiconductor equipment side of the business, so the relationship between customer and OEM has become critical to ensure that this integration takes place. It has become a strong collaborative partnership.

The next step was to deliver leadership positions to our customers. We decided that, unless we lead in an area, we aren't adding value to our customers. We had made many acquisitions and had a lot of technology projects — nine of them — and when we considered all this, in terms of driving core technologies to market leadership, we made a decision to focus on our strongest leadership positions in strip and our RTP.

The third component was a realization that industry cycles cannot be predicted with sufficient accuracy — and they're becoming longer and deeper. So we focused on building an organization that can deliver robust returns to our stakeholders at all points in the cycle. Our strategy to create stability will enable us to continue delivering what our customers need, which is value at the wafer surface, regardless of any cycle.

SI: Before all this, however, you had to undergo some painful divestitures and change your business model. What can you tell us about this?

Dutton: Once we began applying these three principles, we had to make some difficult decisions. These resulted in the divestitures of some of our product lines. Probably the most difficult decision was to divest our wet business, which comprised about 30% of our revenues. The wet business wasn't at the gross margin level that our business model required — it was extremely labor- and support-intensive at the customer site. We decided that, to bring it up to a leadership position, a very substantial dollar and time investment was required. Because it was such a large part of our business, we looked for the right partner, in this case SCP Global Technologies. The transition of our wet business to SCP enabled it to become the second largest wet company, providing our customers a very strong, viable player with a leadership position and growth potential in the wet business.

SI: You also divested yourselves from Concept Systems Design, which gave you an epi capability.

Dutton: Yes. This was another case where we made good strides and technology advancements, but decided it wasn't part of our core focus areas. We spun it out to the people who had been originally involved in it, and they are moving it forward.

SI: Of course, all these moves have positively impacted your balance sheet.

Dutton: True. As we focused on improving the balance sheet and asset management, we also did a $45M pipe in the first quarter of 2002, as well as eliminated all our long-term debt. As we restructured the company, we maintained a very strong balance sheet, and as we move into the next few quarters, we're doing so with a very strong cash position. We have over $80M in our balance sheet and no long-term debt. We're working toward breakeven at year's end, and are in a viable position for the company to continue to move forward and adequately fund growth in our two core capabilities — strip and RTP.

SI: After all this, what would you advise companies considering growth through acquisitions?

Dutton: There are two key things: One, ensure that the business model is built to be viable under any circumstances, and that the integration is done quickly and with a focus on returning to, or exceeding, the profit level at which you were before the acquisition. Second, find some way to align all employees to a central vision and, at the same time, develop a business model that will drive the organization back to a strong growth and profitability position.

SI: Partly through the divestitures and partly due to the downturn, Mattson has experienced a 70% staffing reduction. How have you changed your service model to still meet client requirements?

Dutton: It was tough, even though the reduction was accomplished over a number of steps. Naturally, customers develop strong relationships with your service people, and as you begin to downsize you must spend a lot of time and effort with your customers ensuring that nothing falls through the cracks, and that if there are any issues they are handled immediately. This kept our customers comfortable with the changes. Then, as part of what we call our cyclically flexible enterprise model, we developed some peak load service partners. For example, Metron is one of our partners in certain parts of the world, and we have another one, Prima, for the China area. We train some of their people at the local level on routine maintenance and also on installations. Instead of having to hire additional people in other regions around the world, we already have a trained staff where we need it. Utilizing these service partners has helped us handle mini installation bubbles and to save costs, even in the depths of this downturn.

SI: What are your thoughts on the avalanche of mergers and acquisitions taking place in our industry?

Dutton: There will be more consolidation. When you consider the capacity to fund some of the technology requirements — and the return on those investments — and you layer on top the unpredictable cycles we're subject to, it becomes increasingly difficult for smaller companies to be able to see an ROI. Strategic alliances are another way of getting through this; they help companies share expertise and some of the financial burdens.

SI: Now that the dust has settled, what are some of your short- and long-term plans and strategies?

Dutton: Short term, we'll continue refining the company under the principles we discussed and drive market share to a dominant position in strip and continue to grow in RTP. Longer term, we'll make our next move by developing or acquiring our next position of growth.

SI: Has the downturn caused any changes within your customer base?

Dutton: This downcycle has made many customers think through what their requirements really are, and some of our customers have crystallized this. They're being more conservative with their forecasting with us, which helps both sides to manage overall assets, especially inventory, and will be key in helping to reduce overall costs. There's also additional pressure, not so much to lower prices, but to deliver more value for the price. This is through better operation, faster times to market, as well as more process integration on our side.

SI: Does this also mean they expect you to provide the know-how that they once had in-house?

Dutton: Most definitely!

SI: Is growth becoming more difficult?

Dutton: Growth is possible, but you have to be sharply focused on your competencies, and be a strong business entity capable of delivering at a leadership level. Cycles are making outside R&D funding increasingly difficult to obtain.

SI: Any trends we should pay more attention to?

Dutton: The supply chain is becoming more important. We must focus on more seamless communication and more methodologies that drive toward a more lean thinking process. It's not acceptable to pass problems down the supply chain. Also, OEMs are going to have to work more closely with customers at the integration level. Customers are going to depend more and more on device shrinks to drive down costs per bit, and equipment suppliers must enable that.

SI: How do you view the move toward Asia, particularly China?

Dutton: Short term, there are a lot of companies driving toward China. Long term, we have seen our industry shifting focus from one region of the world to another. Wherever there is investment and growth, that's where the industry goes. Over time, this tends to balance out with the rest of the world. China is probably one of the most unique of these regions, due to its large labor force and internal market. Short term, there's a potential overcapacity situation because there are non-economic drivers that are helping to grow China. This, too, should balance out over time. There's also a concern over whether we're putting too many eggs into the Chinese basket; however, most major players are global and are therefore present in more that just one region of the world.